Why A shares are unlikely to rebound in short term

September 25, 2015 17:27
President Xi Jinping has struck several investment deals during his US visit that have fueled market speculation. Photo: Xinhua

China’s stock market rose 26 points to close at 3,142 Thursday, although market turnover in Shanghai and Shenzhen reached only 550.6 billion yuan.

The market still lacks momentum because of insufficient liquidity, and investors are speculating on different sectors one after another.

President Xi Jinping has struck several investment deals during his US visit that have fueled market speculation.

One of Xi’s main tasks during his US visit is to restore market confidence and ease investors jitters over moderating economic growth in China.

He reassured Americans that China’s economic growth will remain fine in the long term.

Beijing will step up its efforts to push economic restructuring during its 13th five-year plan and has pledged to reduce hurdles for foreign investors as well as enhance protection of intellectual property rights.

As is the usual practice with Chinese leaders, Xi has brought generous "gifts" during his state visit.

Boeing has signed deals to sell 300 jets to China and establish an assembly plant in the country.

It’s reported that the proposal to establish the plant in Zhoushan, Zhejiang province, has already been submitted to the State Council.

The aircraft industry is one of the most promising high-end industries that Beijing is keen to develop in the coming decade.

In addition, Boeing has agreed to authorize the Aviation Industry Corp. of China to increase its production of Boeing 747-8 plane parts.

The deal is set to benefit the Chinese company’s subsidiaries.

Sichuan Chengfa Aero-Science & Technology Co. (600391.CN) touched its daily up-limit, and Avic Aviation Engine Corp plc (600893.CN) also soared more than 5 percent Thursday.

Meanwhile, there are more reform initiatives at home.

The State Council has announced measures to deepen pricing reform and maintain government guidance in just seven industries, including natural gas, power, water supply and the postal service, compared with 13 sectors previously.

Also, Beijing intends to accelerate the construction of charging facilities for electric vehicles.

To increase the number of charging stations, new residential complexes are required to ensure that all parking lots have charging facilities or space should be left for such facilities, while no less than 10 percent of parking spots in large public buildings or public car parks should have charging facilities.

The authorities are encouraging private investors to join this green effort through sole investments or public-private partnerships.

Private companies and individuals are allowed to invest in and build public parking lots, and charging facility providers are allowed to charge users fees.

Charging facility plays experienced some profit-taking following the news.

Shanghai Potevio Co. Ltd (600680.CN) dropped over 3 percent, and BYD Co. (002594.CN) fell 2 percent.

By contrast, Shanghai Electric Power (600021.CN) and Far East Smarter Energy Co. (600869.CN) rallied 2.5 percent and 1.6 percent respectively.

These stocks are set to lure more investors, given policy support in the future.

Energy industry reform is a key focus of China’s reform of its state-owned enterprises.

Mainland media reports say China will spin off oil and gas transport pipelines into a separate company independent from the three oil giants. The authorities are still studying the detailed plans.

PetroChina Co. (601857.CN) and Sinopec (600028.CN) rose less than 1 percent.

The market still lacks upward momentum.

And it remains to be seen whether it can rebound after the National Day holiday.

Investors should adopt a short-term investment model, buying at lows and selling at highs, as the market is trading sideways.

Long-term investors should focus on stocks that have policy support, excellent earnings and attractive prices.

This article appeared in the Hong Kong Economic Journal on Sept. 25.

Translation by Julie Zhu

[Chinese version中文版]

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a columnist at the Hong Kong Economic Journal